The First 2 Weeks

Two weeks and change since Canada made pot legal, here’s how it’s going.

Canada is the first G7 country to make recreational marijuana legal. Many estimated the new legislation would increase the market for pot producers in Canada by 10 times.

The country’s producers seem to be in a good position. Licensed producers (LPs) in that country have the opportunity, the cultivation experience, and a rich store of genetics developed. Not to mention lots of cash.

We’re taking a look at the country’s largest provinces and how they handled the roll out to rolling up, as execution has a direct impact on the companies we follow.

Ontario

The only way to buy bud in Ontario right now is on the Ontario Cannabis Store’s (OCS) online platform. The OCS experienced delays shipping orders – some of the very first customers report the OCS has yet to confirm their orders.

Restocking issues – or not?

More importantly, the OCS may have restocking problems as well, with only a fraction of all products actually available. The OCS initially had over 200 different product numbers on its website. Now however, it looks as though only roughly 70 products are in stock.

Buyers are also saying the OCS isn’t publishing re-stocking shipment information. Some suggest the move lets the OCS catch up on their shortfall before expanding their product offering. But for LPs who did re-stock the OCS, their product may be sitting on the shelf rather than being shipped.

Ontario is by far Canada’s largest market with 40% of the total market in the country. OCS delays are disappointing to LP’s who are eager and ready to get products stocked and sold. Unfortunately, there’s limited evidence that execution is soon to improve.

Quebec

The provincial stores selling cannabis products in Quebec are called SQDC. Since legalization, some stores are almost sold out of all product. Moreover, the physical stores just announced they’ll be closed Mondays to Wednesdays.

Like Ontario, Quebec’s stores only have a fraction of its products available, with some reporting that only ~20% of SQDC’s dried flower products were in stock on the website. There are now only approximately 17 products available in Quebec’s online store, which is the lowest of the big provinces. This could be due to the fact that it only has six suppliers.

The shortage is no surprise, as that province only offers products from 6 suppliers.

Alberta

Alberta, the largest province to go the privatization route, seems prepared for legal pot. In spite of long lines at retail locations and occasional ‘out-of-stock’ signs at online store, providers in Alberta seem to be restocking.

The Alberta Gaming and Liquor Commission (AGLC) oversees a network of private cannabis retailers in that province. The AGLC sources product for shops to buy from them. They are also the only online sales retailer in the province.

Alberta’s online store has had a steady supply rate. When products in stock did decrease, the province replenished quickly.

British Columbia

The province may been synonymous with green, and yet it has only one physical store open. The province is relying mostly on its online platform, which generated 80% of the province’s sales in the first week. For those trying to forecast market growth, moreover, it’s difficult to glean details of any new retail licences in the province’s pipeline.

British Columbia has a hybrid (private and public sellers) model. The BC Liquor Distribution Branch (BCLDB) is the main distributor to future private retailers. Moreover, it will run retail stores and make online sales. Right now there’s only one physical store in B.C., which is the BCLDB’s. The province is still reviewing private retailers’ applications.

BC’s online store has the widest variety of dried cannabis product offerings. Unlike Quebec, the B.C. government established supply agreements with many LPs from across the country.

Excise issues

Inventory shortages are a result of huge demand, but also the excise stamp problem. Each province has a seal that producers place on product containers. Government delays shipping the stamps contributed to the shortages. LPs are facing difficulty labeling their products with excise stamps, creating a restocking bottleneck.

Apparently, the majors such as Tilray, Aphria and Aurora have a low supply available.

It seems impossible that cannabis sales will top expectations this year. The main issues are distribution difficulties, fulfillment issues, stock shortages, and availability of excise stamps. This affects any company producing and distributing cannabis.

What's your reaction?

Mr Bagg has over 20 years experience in financial services ranging from Capital Markets to Private Equity. Mr Bagg has helped clients build wealth, reduce taxes and plan for retirement. Drawing on his experience, Mr Bagg has spoken on different panels regarding investing and has written numerous due diligence reports and white papers in this area.

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